3 Cashflow Changes Caused by Home & Auto Insurance

The difficult home and auto insurance market is hopefully beginning to normalize, but what changes does this cause to your cash flow permanently? I've got three things that you need to adjust in your financial life. That and more coming up. My name is Mike Bernard. I'm the host of The Wise Money Show. I'm also one of the certified financial planners right here at Core Horn Financial Group. Make sure you hit that subscribe button, turn on notifications, and smash that thumbs up button, right, as we are getting some news from our insurance companies that we work with and just the insurance industry in general. We're starting to hear like, okay, companies have increased rates enough that they're starting to cover their costs and some of them are breaking even. We might be reaching a normalization here and things settling down in the home and auto insurance world. And then we get hit with these huge hurricanes, right? And so, I don't know. I'm hopeful, guys. As inflation skyrocketed, your insurance costs started to go up, but they were reactionary. Why? Because as inflation skyrocketed and there was the chip shortage and there wasn't any labor to fix cars and cars weren't being assembled and there weren't workers to build houses or repair houses, all that sort of stuff, that happened sort of overnight, very, very quickly, and it didn't cause your insurance rate to go up because, again, you're paying an insurance rate for the next 12 months, so nothing changed. But then also, claims then, as a claim hits, then it's later after the fact, like later on, that's when, okay, well, now we're experiencing these higher prices because of the chip shortages and the labor supply issues, all that sort of stuff. And so, the whole thing has been delayed like two to three years post-COVID. So, you've seen your insurance rates skyrocket. I have seen my insurance rates skyrocket. And now that, thankfully, inflation, the rate of price increases is more stable now, if I can say that. We're hearing that insurance rates should start leveling off for many, many companies. However, there is a reset here. This is impacting your financial life. And yes, oftentimes, from commercials or maybe our agent makes it feel like, well, you've got all your finances over here, but then your insurance decisions are disconnected, they're somewhere else. No, no, protection planning, that's one of the six areas of your financial life. And even your home and auto insurance, the decisions you make with your coverage, deductibles, premiums, all that stuff, it impacts your cashflow. It impacts what you can do with tax shelters and your investments. It impacts your estate plan, your legacy. So, you've gotta make these decisions and you can't make them in a vacuum. You need to make sure that they're bringing synergy to all areas of your financial life. So, this permanent reset, this adjustment, this shock that we've all gone through with our home and auto insurance is creating three specific changes to your present financial position, to your cashflow. And I wanna make sure that you are on top of this. First is the obvious one, and that is updating your budget. There's just no question. No one has been insulated from the rise in home and auto insurance rates, no one. And you might say, well, we live in a big city. We actually don't even have a car. We just take public transportation, take the L, take whatever. Well, then you're, and we don't own a house, so we're pretty insulated. No, your rental, your rent coverage has gone up. You likely have an umbrella policy. That's gone up as well. So, even those of you that don't own a home or don't own a car, you're still impacted. And if you do own a car, my goodness, have you been impacted? And same with the house. My rates, I don't have the exact numbers. They've gone up over 50%. Many of you, it's gone up a lot more than that. You're paying double. And some of you have even received letters from your insurance company saying, we're no longer gonna insure you. It's been an enormous adjustment, but the obvious one is rates are now higher. And just like the cost of meat or just like the cost of stuff at the grocery store, it's not gonna come back down. And when they say inflation is back to low levels, that doesn't mean prices go back to where they were. Prices are now higher. You need to update that in your budget. No one likes it, I don't like it, but you need to deal with reality and update your budget accordingly. That's the first cashflow change. But then the second is I've shared along the way things that you need to be doing to make sure that you're getting the full discount and everything that's even more important as prices go up. And one of them that we continue to see from folks is that they're still paying for their insurance monthly. They like it. It fits nicely in my budget. That's how I've always done it. And you're missing out on the paid in full discount. Hopefully you're getting more discounts, but insurance companies will give you a discount if they have to process your payment fewer times, right? That's logical, that makes sense. If there's a human or even a computer that has to process your payment and post your payment every single month and make sure that everything is aligned, that costs money. There's energy and resources going to that versus if you just say, I'll pay it for the whole year all at once. In the old world, you might've said, yeah, it's no big deal. It's easier for me to do it monthly. In the new world, it's more expensive. So this is a discount that you can't afford to give up. Therefore, switch to annual pay or paid in full, however your insurance company decides to call it. And so how do you make sure that once a year when now this little bite-sized piece, well, not so much, but that was part of your budget, now it's just a one-time large expense, delayed spending. Delayed spending, that's the second bank account that we recommend everyone have. Your delayed spending is a savings account, maybe a money market, mine's a money market, where you have listed out all of your known non-monthly expenses. Everything that's monthly comes out of your budget and you just, you account for that there. But what are the known non-monthly expenses? Things like vacation, things like once a quarter expenses, maybe tax estimates, something like that. Things like life insurance, which typically is once a year and home and auto insurance or auto insurance if you've got a mortgage and your home is escrowed. Figure out what the annual cost is, divide it by 12 and transfer that money automatically from your checking into your savings so that when that insurance bill comes up once a year, it's not a surprise. It's now 100 or $200 less than it would have been because you're paying it in full and you've got the cash there to do it and you just make the payment once. I don't like having that automatic draft or automatic transfer every 12, excuse me, once a month. I do it once a week. It transfers on Thursday at once a week. A little bit comes right out of the checking account, goes into my delayed spending insurance savings account and then when I get the insurance bill, I've got the money there to pay for it. So second way that the new normal with insurance is impacting your cashflow is you need to shift to paid in full, one payment a year and you gotta update your savings plan, your delayed spending to account for that. And then the final shift, the third thing, third way that this change in home and auto insurance is impacting your cashflow is likely you need to raise your deductibles. And you don't want to. I don't want you to either, but you need to. We're shifting so that, to an area where your home and auto insurance is gonna be more catastrophic coverage only. And the little expenses, and by little, I don't mean insignificant, they're meaningful, but the I hit a deer, so I got the fender bender or something, one of the neighbor kids hit a baseball through the window or something like that. You're just gonna be paying those things out of pocket because if you submit a claim, then you're still gonna have to pay your deductible. The insurance company will cover above and beyond that. But now you have a blemish on your record. And so your rate could go up. You could get non-renewed in the future. It's just, we're in a different world right now with home and auto insurance. And therefore, you likely need to raise your deductible on your house, maybe for your autos as well. For your home, your deductible might have already increased automatically. This is part of the shrink-flation in insurance companies are doing, where they're automatically shifting deductibles from a flat number to a percentage of loss or something like that. But you've gotta work with your certified financial planner, work with your insurance agent to say, my homeowner's insurance was 1,000. What's it look like at 2,500? What's it look like at five grand? What's it look like at 10 grand? Is it worth the savings? And the offset with that is you then need to update your emergency fund. So that if that deductible hits, if you've got a claim that'd be an emergency, you've got the cash there to cover a higher deductible. So that's the third way that this new insurance world, this new normal is impacting your cashflow. Work with your certified financial planner. Ensure that your coverage is consistent with the rest of your financial life. So many people, due to these soaring prices and really challenging, hard insurance market are going with less coverage or without coverage. And that means your insurance, your coverage is even more valuable today than it was before because there's more to protect. And not only that, you've made progress in your financial life over the past few years. So there again, there's more to protect. So getting this right is important and your protection plan, your decisions there impact all six areas of your financial life. So work with your CFP on that. If you don't have a CFP on your team, you can contact one on my team, you can find us online, kohorn.com. That's Kohorn with K, wisemoneyshow.com. You can find us there as well, or give us a call, 574-247-5898. All right, there you have it. Go out and take your next wise step in your financial life.